Monetary Policy, Customer Capital, and Market Power (with D. Zeke), Journal of Monetary Economics, 2021, (121): 116-134 [Slides]

Abstract: In U.S. firm-level data, large firms increase their spending on customer capital significantly more than small firms following an interest rate decline. We interpret this evidence in a model with product market frictions where heterogeneous firms strategically advertise to build a customer base. When a firm advertises, it shifts customers’ demand away from competitors. This externality is especially severe when firms have a sizable existing customer base, discouraging smaller competitors and making them less responsive to interest rate shocks. The model provides a rationale for the rise in market concentration and market power in recent decades, while interest rates fell.

Working Papers

Abstract: Global value chains (GVCs) typically involve large firms exerting bargaining power over the terms of trade. We develop a novel theory of international prices accounting for these features of GVCs and illustrate their effect on the pass-through of trade shocks into import prices. We build a new dataset merging transaction-level U.S. import data with balance sheet data for both importers and exporters to evaluate the model's performance. Our estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S. import prices by 40-60%.

Abstract: This paper shows that self-employment opportunities shape the market power of employers in low-income countries, with implications for industrial development. Using data from Peru, we document substantial employer concentration and high self-employment rates across manufacturing local labor markets. Where employer concentration is higher, wages are lower, and self-employment is more prevalent but less remunerative. To interpret these facts, we build a general equilibrium model where labor market power in each market arises from (i) strategic interactions among employers and (ii) sorting of heterogeneous workers across wage work and self-employment. We structurally estimate the model and quantify the relevance of these mechanisms for rent-sharing between workers and firms and for the effect of policies promoting manufacturing wage employment. We show that changes in concentration magnify the pass-through of productivity and profitability shocks to wages, but worker sorting across wage and self-employment mitigates these effects. We find that policies that increase firm productivity are more effective in expanding wage employment and increasing workers’ earnings than other interventions that improve workers’ skills or decrease firm entry cost.

Abstract: We estimate the effect of liquidity constraints on investment in intangible capital and how this leads to differences in markups across firms. We exploit variation in liquidity shocks across firms induced by a policy reform as a quasi-natural experiment to establish causality. We show that: 1) following a positive liquidity shock, firms increase their investment in intangible assets, 2) by holding more intangibles, firms can charge higher markups over marginal costs. Our results show that financial constraints may have contributed to markup inequality across firms through their effect on intangible investment, with implications for the efficiency of recent macroeconomic trends.

Market Power in Input Markets: Theory and Evidence from French Manufacturing*, 2020

* Currently working on a revised version, co-authored with E. Guigue

Abstract: This paper presents micro-level evidence on buyer power in input trade and evaluates its effects on the aggregate economy. I develop a framework to estimate market power in input markets when downstream firms' prices are determined through bilateral negotiations. Using trade and production data from France, I show that buyer power has a much larger impact on foreign than domestic input markets. Descriptive evidence on imported input prices reveals patterns consistent with a sizable buyer power of importers. I build an equilibrium model to explore the output and welfare implications of my estimates. Like an optimal tariff on imports, importers' buyer power can raise national income due to terms-of-trade effects, which more than compensate for losses in consumer surplus and trade volumes. In baseline calibrations, buyer power results in a net increase in welfare of about 2%.

Work in Progress

Endogenous Currency Invoicing and Dominant Currencies, with C. Lenoir

Concentration and Markups in International Trade, with V. Alviarez, M. Fioretti and K. Kikkawa